...
By Giulia Carbonaro
Senior Reporter
0
Share
Newsweek is a Trust Project member
See more of our trusted coverage when you search.Prefer Newsweek on Googleto see more of our trusted coverage when you search.
Los Angeles’ so-called "mansion tax," which has imposed higher levies on properties valued over $5 million, has backfired against the city, according to a new study which found that it has slowed down new construction and shrunk sales.
A decline in new construction permits, which researchers link to the recently introduced levy targeting luxury homes, could exacerbate the city’s already significant shortage of affordable homes.
Even before the devastating fires in January last year destroyed more than 16,000 structures across Los Angeles, the county was already facing a deficit of nearly 500,000 affordable homes, according to California Housing Partnership’s 2021 Los Angeles County Housing Need report.
Read More on News
What Is the L.A. "Mansion Tax?"
Officially known as Measure ULA, Los Angeles’ "mansion tax" was adopted nearly three years ago as a way to fund affordable housing and provide resources to tenants at risk of facing homelessness in the city.
The tax, which was already opposed at the time it was introduced, imposes a 4 percent levy on the sale of properties valued between $5.3 million and $10.6 million and a 5.5 percent levy on sales exceeding $10.6 million. This tax is typically shouldered by sellers, who are also responsible for covering the 0.45 percent levy that Los Angeles applies to all home sales.
The levy was presented as a way to help reduce the financial stress on Angelenos struggling with rising housing costs and a lack of affordable housing in the city. According to a white paper released by researchers from UCLA in 2022, only 20 percent of households in Los Angeles could afford a home with the median price of $792,470 at the time.
But since its introduction in April 2023, the impact of the tax has been much debated.
...
In a study published last year, Joey Waldinger, a researcher at UCLA Lewis Center for Regional Policy Studies, revealed that the "mansion tax" had raised a "sizable sum" since being implemented, "but lower than expected." Through December 2024, the city had raised roughly $480 million through the levy—much less than what supporters said it would generate, a sum estimated between $600 million and $1.1 billion annually, according to Waldinger.
The reason for its underperformance, Waldinger said, was its negative impact on housing production. "Measure ULA appears to drive down housing and commercial property development, and does not generate enough revenue to make up for the lack of production," the researcher wrote.
What Impact Is It Having On the L.A. Housing Market?
The theory laid out by Waldinger last year was confirmed by a new study by a Ph.D. student at UCLA Anderson School of Management, Yingru Pan, who wrote a working paper on the unintended consequences of the tax on construction in Los Angeles.
In her 60-age analysis, Pan writes that, compared with 2018-2019 levels, when the "mansion tax" had not yet been introduced, overall filing for new construction in Los Angeles plummeted by an average 40 percent between 2023 and 2024.
Within the same period, multifamily construction permits fell 27 percent and permits for single-family homes dropped 45 percent.
"The tax’s primary effect was to broadly suppress construction activity rather than shift development toward affordability or multifamily housing," Pan wrote.
"Developers likely hesitated to pursue even moderately priced multifamily units due to perceived financial risks, such as cascading tax impacts on project valuations or uncertainty about future policy adjustments," she added.
Not only developers are hesitating to build. "Facing higher costs and uncertainty from the tax," Pan wrote, "developers likely redirected capital and labor to jurisdictions unaffected by the policy," leaving Los Angeles’ housing market is an even more dire situation.
The city is already one of the most expensive housing markets in the nation, with the median listing price in the metro registering at $1.025 million in January, according to the latest monthly housing market trends report from Realtor.com.
"A mansion tax targeting high-value properties could reshape construction trends, as developers often prioritize luxury projects for their profitability," Pan wrote in her analysis.
"Introducing tax penalties might reduce incentives for such projects, potentially slowing construction activity. This could tighten the overall supply of housing, worsening existing affordability challenges, particularly for middle-income buyers facing increasingly competitive markets," she added.
The ripple effects of the "mansion tax" might extend beyond housing, according to Pan, and affect job opportunities in Los Angeles.
"Construction delays or scaled-back projects could lead to job losses in the sector, straining local economies reliant on development," she said.
On the other hand, she argued, "the tax could generate significant public revenue, which could fund affordable housing programs or infrastructure. Balancing these trade-offs-economic risks against potential social benefits-is critical for policy design."
Reforming the "Mansion Tax"
Criticism of the "mansion tax" is growing in Los Angeles, and so are initiatives to amend the levy.
Los Angeles City Councilmember Nithya Raman introduced a measure in January aimed at reforming the tax, arguing that the unintended consequences are undermining housing production while threatening the policy’s long‑term viability.
Raman, who was an early supporter of the measure, is proposing to add targeted exemptions—such as a 15‑year carve‑out for newly built or substantially rehabilitated multifamily and mixed‑use projects—intended to spur development while preserving revenue for homelessness prevention and affordable housing programs. She has framed her proposal as a corrective rather than a rollback.
But efforts to reform the levy has sparked sharp backlash from labor unions and progressive housing advocates, who argue that the "mansion tax" should not be blamed for broader market slowdowns and warn that exemptions could weaken a major funding source.
Despite resistance, Raman has continued to argue that amending the policy is necessary to continue pursuing the goal that drove its introduction in the first place, and to prevent it being repealed altogether later down the line.
View 0 Comments
Submit Correction
View Editorial & AI Guidelines